Zenabis’ total licensed annual cultivation capacity is now 23,100 kg2 of dried cannabis; and

Construction and licensing continue to progress on track at Zenabis Langley and Zenabis Atholville Phase 2C, with licensed annual cultivation capacity expected to increase to 131,200 kg2 of dried cannabis in the third quarter of 2019.

Andrew Grieve , Chief Executive Officer of Zenabis, stated, “Zenabis achieved strong cultivation results again in May. We are confident in our ability to continue to outperform as we refine our cultivation approach. As expected, the variety of cultivation approaches we are testing resulted in a room-by-room variance during May. For example, the 52.4% outperformance room this month was a test room using several alternative approaches. Going forward, aside from variance resulting from ramp-up in rooms, we continue to expect to achieve greater consistency in output commencing in July.”

“We are pleased with the rapid progress of our construction and licensing efforts to-date,” continued Mr. Grieve. “During the month of June, Health Canada approved both our industrial hemp production license and the license amendment for Phase 2B at Zenabis Atholville. The receipt of the Phase 2B license amendment approval, particularly following the recent licensing of Phase 2A at the same facility, is a testament to the expertise of our team in constructing compliant space and working closely with Health Canada. This approval, together with our recently submitted Phase 2C – Part 1 license amendment application for Zenabis Atholville and our planned site evidence package submission for Zenabis Langley Site A, gives us continued confidence that our licensed annual cultivation capacity will increase to 131,200 kg2 of dried cannabis in Q3 2019.”

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1

To better reflect the actual performance of its facilities going forward, the Company reports a Performance Ratio, calculated as follows: after each harvest, Zenabis will calculate the dry weight cannabis output for each room (the “Total Output”), taking into account the amount of days in production through a combination of: (1) the amount of flower room days used (including turnaround time) for that room; and (2) the amount of flower-room equivalent days required from other flower rooms in support of that harvest (together the “Effective Flower Room Equivalent Days”). Zenabis will then divide the Total Output by the Effective Flower Room Equivalent Days in order to produce the “Effective Yield Per Day” for each room, and then divide the Effective Yield Per Day by the Design Capacity Yield Per Day for each room in order to determine actual performance versus the Design Capacity Yield Per Day (this ratio being the “Performance Ratio”). Zenabis believes that the Performance Ratio will provide investors with the best measure of actual cultivation performance versus Zenabis’ published design capacity.

2

Reflects a 100kg decrease relative to figures previously disclosed as a result of the suspension of growing activities at Zenabis Delta outlined in the “Construction and Facility Updates” section of this release.

Cannabis Production Summary

In May 2019 , Zenabis realized a total harvest weight of 908 kg of dried cannabis. Zenabis’ harvest weights have increased sequentially every month since October 2018 .

The amount harvested for the three months ending May 31, 2019 exceeded the design capacity of the flower rooms by an average of 24.7%, compared to 14.8% in the three-month period from February 2019 through April 2019. A month-to-month comparison of actual harvests compared with harvest forecast based on design capacity between January 2019 and May 2019 is provided in the table below.

Historical Harvests – Atholville

Jan

2019

Feb
2019

Mar
2019

Apr

2019

May

2019

Total

Actual Harvest Weight

474 kg

480 kg

518 kg

809 kg

908 kg

3,189 kg

Design Capacity Harvest Weight3

372 kg

495 kg

463 kg

616 kg

672 kg

2,618 kg

Difference (kg)

102 kg

(15 kg)

55 kg

193 kg

236 kg

571 kg

Difference (%) – “Performance Ratio”

27.4%

(3.0%)

11.9%

31.3%

35.1%

21.8%

3 The Design Capacity Harvest Weight is based on the “design capacity” yield that Zenabis has disclosed to date. This figure was derived by converting the actual square footage of flower room space and the forecast canopy for each specific flower room into a kilograms per room per day figure (the “Design Capacity Yield Per Day”) is based on Zenabis’ historical yield data at the Zenabis Atholville facility through September 2018. The Design Capacity Harvest Weight in the table above is the harvest weight that would have resulted if the Design Capacity Yield Per Day for a room was multiplied by the Effective Flower Room Equivalent Days, as defined under “Performance Ratio.”

In May 2019 , Zenabis completed five harvests at Zenabis Atholville, whereas the forecast included four harvests, with one harvest being accelerated versus the schedule. The Performance Ratio for these harvests ranged from 10.0% to 52.4%.

For its existing licensed facilities of Zenabis Atholville and Zenabis Stellarton (and excluding Zenabis Delta), Zenabis expects to produce approximately 12,2284 kg of dried cannabis from June through December of 2019. The following table sets out Zenabis’ estimated monthly harvests for Zenabis Atholville and Zenabis Stellarton for the remainder of 2019, as well as the forecast provided previously for April and May of 2019 compared to the actual amount harvested in April and May of 2019.

April

2019

May

2019

June

2019

July

2019

Aug

2019

Sept

2019

Oct

2019

Nov

2019

Dec

2019

Total

Forecast4

495 kg

607 kg

668 kg

836 kg

781 kg

1,627 kg

2,263 kg

2,702 kg

3,351 kg

13,330 kg

Actual

809 kg

908kg

1,717 kg

4 This forward-looking estimate of future harvest results is based on the following material assumptions: (1) Both Zenabis Atholville and Zenabis Stellarton operate at their published design capacity on a room by room basis for the cultivation space that is, or is expected to be, licensed and in cultivation at the forward-looking periods noted; (2) Cultivation commencement at Phase 2C, Phase 2B and Phase 2C at Zenabis Atholville in June 2019, July 2019 and August 2019 respectively; and (3) For each of phases 2A, 2B and 2C at Atholville, three days of separation will occur between planting of each room at the point cultivation commences.

Zenabis intends to provide a monthly cultivation forecast for Zenabis Langley upon receipt of its cultivation license.

The timeline from harvest to the point at which Zenabis completes a sale of that product ranges from a minimum of two weeks (in the case of a bulk sale to a licensed producer) to more than eight weeks (in the case of soft gel capsules which involve external extraction, processing, filling, packaging and shipment). Zenabis recognizes the revenue from completion of such sales in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Construction and Facility Update

Zenabis Atholville (Indoor)

With the recent receipt of the license amendment for Phase 2B , the 380,000-square-foot Zenabis Atholville indoor facility is now licensed to produce cannabis from 251,600 square feet with licensed annual cultivation capacity of 22,300 kg of dried cannabis (Phase 1, Phase 2A and Phase 2B ). Zenabis is in the process of licensing additional flower rooms and support space to expand cultivation capacity. The remaining phase, Phase 2C consists of 118,000 square feet and Zenabis has submitted a license amendment to Health Canada to commence production in the first 10 flower rooms of Phase 2C (“Phase 2C – Part 1”), which will expand the facility’s licensed annual cultivation capacity by 9,800 kg of dried cannabis. The remaining four rooms of Phase 2C (“Phase 2C – Part 2) are nearing completion. Zenabis expects to submit a license amendment for the second portion of Phase 2C in July or August 2019 , which will expand the facility’s licensed annual cultivation capacity by a further 2,200 kg of dried cannabis. Upon license amendment approval from Health Canada of Phase 2C – Part 1 and Phase 2C – Part 2, Zenabis Atholville will be fully licensed and have reached its full annual design capacity of 34,300 kg of dried cannabis.

Zenabis Langley (Greenhouse)

Zenabis is currently converting 10 acres of Zenabis Langley (“Site A”) following the successful transfer of all floral and propagation business from Site A to Zenabis Aldergrove. Construction at Zenabis Langley is progressing in accordance with previously provided timelines. Zenabis has completed the construction of all interior and exterior insulated wall panels, offices and staff support areas, and the majority of operational workspaces. Security work has been completed for the first phase of Site A and HVAC work is ongoing. Completion of the first phase of Site A is on schedule.

Site A is divided into six flower zones, which are similar to those in an indoor facility, but much larger in size. Construction of the flower rooms is expected to be completed between June and August, with the first phase of construction expected to be completed by the end of June, and construction expected to be substantially complete for all rooms by the end of July. Site A has an annual design capacity of 96,100 kg of dried cannabis.

Zenabis Delta

Zenabis is currently in the process of constructing an extraction, post-processing and analytical testing lab at Zenabis Delta. In order to progress the construction of the Zenabis Delta facility, Zenabis has suspended the limited growing activities that it had at this site (100kg of licensed annual cultivation capacity). This construction project is expected to be complete in the third quarter of 2019.

Licensing Update

Zenabis is currently in the process of various licensing submissions for Zenabis Langley, Zenabis Atholville and Zenabis Stellarton as outlined in the table below:

License Submission

Submission Date

Annual Design Capacity

Zenabis Langley Site A – Cultivation License

September 2018
(Initial Submission Date)

January 2019
(Amendment Submission Date)

June 20195

(Submission of site evidence package)

96,100 kg

Zenabis Atholville Phase 2C – Part 1

June 2019

9,800 kg

Zenabis Stellarton – Processing License

June 2019

N/A

Zenabis Atholville Phase 2C – Part 2

July-August 20195

2,200 kg

5 Expected submission timeline.

Zenabis is currently using Zenabis Pitt Meadows, Zenabis Aldergrove and Zenabis Langley for the propagation and floral business, as well as hemp cultivation activities summarized in the “Industrial Hemp Cultivation” section below. All hemp cultivation at Zenabis Pitt Meadows and Zenabis Aldergrove that utilizes greenhouse space is in space currently not being used by the propagation and floral business. As a result, this will not have a negative impact on Zenabis’ propagation and floral business. Hemp cultivation will not interfere with the planned cannabis cultivation activities at Zenabis Langley, nor will it reduce the cannabis cultivation design capacity of Zenabis Langley.

Industrial Hemp Cultivation

Since Zenabis announced its receipt of an industrial hemp license on June 3, 2019 , it has commenced the cultivation of industrial hemp at Zenabis Pitt Meadows and Zenabis Aldergrove. In June, Zenabis planted over 1,000,000 hemp plants, primarily in greenhouse space. A breakdown of the cultivation space utilization as well as plant count is provided in the table below:

Zenabis Aldergrove

Zenabis Pitt Meadows

Total

Greenhouse Plant Count

720,000

270,000

990,000

Outdoor Plant Count

Nil

30,000

30,000

Total Plant Count

720,000

300,000

1,020,000

Greenhouse Space Utilized

453,000 sq. ft.

163,500 sq. ft.

616,500 sq. ft.

Outdoor Land Utilized

Nil

18,200 sq. ft.

18,200 sq. ft.

The first harvest of industrial hemp is expected to occur in early September. Zenabis intends to use the harvested hemp for the production of hemp-derived CBD, which will further Zenabis’ initiatives to participate in the hemp-derived CBD industry in both Canada and the United States , as regulations permit.

Zen Craft Grow

Since Zenabis’ last operations update on June 3, 2019 , it has signed two additional definitive cannabis supply agreements under its Zen Craft Grow program, bringing the total number of exclusive, definitive supply agreements to five. Through the Zen Craft Grow program, Zenabis supports cannabis micro-cultivators across Canada in the final stages of the Health Canada licensing process. Through these arrangements, Zenabis purchases cannabis from small, craft growers which provides Zenabis with unique genetics and small-batch, artisinally grown cannabis to distribute to retail channels for discerning adult-use consumers across Canada .

About Zenabis

Zenabis is a significant Canadian licensed cannabis cultivator of medical and recreational cannabis, and a propagator and cultivator of floral and vegetable products. Zenabis employs staff coast-to-coast, across facilities in Atholville, New Brunswick ; Delta , Aldergrove , Pitt Meadows and Langley, British Columbia ; and Stellarton, Nova Scotia . In addition to gaining technologically advanced knowledge of plant propagation, the recent addition of state-of-the-art greenhouses in Langley , Pitt Meadows and Aldergrove provides Zenabis with 3.5 million square feet of facility space that can, if fully converted, be dedicated to cannabis production.

If all facility space at Zenabis Atholville, Zenabis Stellarton, Zenabis Delta and Zenabis Langley is fully converted and dedicated to production, Zenabis will own, and have access to 660,000 square feet of high quality indoor cannabis production space, as well as 2.1 million square feet of greenhouse cannabis production space at its Langley facility, with this production strategically positioned on Canada’s coasts. Zenabis expects these facilities to have an annual design capacity of 131,300 kg of dried cannabis by the third quarter of 2019. These facilities, if fully built out and converted for cannabis production, would have an annual design capacity to yield approximately 479,300 kg of dried cannabis annually, for both national and international market distribution. An additional 700,000 square feet of greenhouse space will be used to continue the existing propagation business and produce industrial hemp, and can be converted to cannabis production at such a time that is beneficial to the strategic position of the Company. The Zenabis brand name is used in the cannabis medical market, while the Namaste and Blazery brand names are used in the cannabis adult-use recreational market, and the True Büch brand name is used for Zenabis’ kombucha products.